Fitch Downgrades Orinoco Upgrade Projects

Credit ratings agency Fitch has cut the ratings of all four partnerships between Venezuela's state oil firm PDVSA and oil firms that together produce some 600,000 barrels a day (b/d) of synthetic crude, Fitch said in a statement.

Fitch downgraded to B+ from BB the senior secured debt obligations of Petrozuata, Cerro Negro, Sincor and Ameriven (formerly Hamaca) and placed all ratings on rating watch negative.

The downgrade follows legislation to increase the projects' taxes and royalties to a combined 83.3% burden. Not all of the new measures have been implemented, although energy and oil minister and PDVSA president Rafael Ramirez promised to this year.

Fitch says it based its downgrade not only on the new tax considerations but also on projections that have oil prices declining in the next 36 months or so, a combination that is sure to put a severe dent into the projects' bottom lines.

"Fitch anticipates the much heavier royalty and tax burdens combined with the deleterious effect of persistent double-digit inflation in Venezuela will substantially diminish cash flows available for debt service," the statement said.

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